The role and effect of controlling shareholders in corporate governance
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The role and effect of controlling shareholders in corporate governance Lucie Courteau1 • Roberto Di Pietra2 Paolo Giudici1 • Andrea Melis3
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Springer Science+Business Media New York 2016
Abstract This paper examines two potentially contradictory effects of the presence of controlling shareholders. Controlling shareholders have been shown to be beneficial, as they generally have a long-term interest in the firm and are willing and able to monitor the actions of senior managers closely and decrease agency costs between shareholders and management (agency costs of Type I). However, they are also in a position to expropriate the firm’s assets, especially when they are actively involved in management (agency costs of Type II). More specifically, this article reviews how regulatory and legislative bodies have tried to curb the consumption of private benefits by controlling shareholders while preserving the beneficial aspects of their long-term interest and their monitoring role, the effect controlling shareholders on the application and effectiveness of corporate governance best practices as well as on the executive and board member remuneration.
& Lucie Courteau [email protected] Roberto Di Pietra [email protected] Paolo Giudici [email protected] Andrea Melis [email protected] 1
Free University of Bozen-Bolzano, Bolzano, Italy
2
University of Siena, Siena, Italy
3
University of Cagliari, Cagliari, Italy
123
L. Courteau et al.
1 Introduction Throughout its history, the Journal of Management and Governance has published several papers on controlling shareholders. However, it never devoted a Special Issue to the different management and governance issues that are specific to corporations in which a shareholder or a group of shareholders hold a controlling interest. The JMG decided to remedy that situation in 2015 by devoting the Fourth JMG Conference to this research area. This Special Issue is a consequence of the Conference held at the Free University of Bozen-Bolzano (Italy) on 16–17 July 2015. The entire conference was dedicated to the phenomena related to the existence and effects of controlling shareholders considering a wide spectrum of settings, including large capital markets (not necessarily European) and family firms. The title of the international conference, The Role and Effect of Controlling Shareholders in Corporate Governance, is based on the belief that firms controlled (directly or indirectly) by a small number of shareholders are common in most countries, in the form of state-controlled firms in China, dual-class firms in Canada, members of pyramidal groups in Turkey or of Keiretsu in Japan, etc. The conference also aimed at covering two somewhat contradictory effects of controlling shareholders. First, they are in a position to expropriate some of the firm’s assets, especially when they are actively involved in management, a situation that requires special governance systems and structures to protect minority shareholders. On the other hand, controlling shareholders have been sh
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